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Commencement of Business in Company Law

What is Commencement of Business in Company Law?


Declaration of Commencement of Business by Company

The company being a model of operating the business activities in the market has its own identity and legal personality before law. As a legal person it has to comply and abide by the law in which country it operates its business. In India, this legal personality is regulated by the Companies Act 2013 and Rules, Regulations made under. As we know that a company came into existence on its incorporation same as human birth date. 

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After the birth a child has to be nourished and learn his family rules and regulations and also adhere to the laws of that country in which he was a citizen. Same as with a company it is also under the obligation to follow the laws and rules, regulations of the country in which it is incorporated and operates its business.

Now let’s understand the first compliances which are to be adhered to by a company before starting its business activities.

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Provision in relation Commencement of Business

The Companies Act, 2023 provides the provisions for the mandatory declaration for the declaration of commencement of the business by the newly Incorporated company. Section 10A of the Companies Act,2013 provides that a company incorporated after the enforcement of Companies (Amendment) Act,2019 , every company that shall have the share capital mandatorily file a declaration by the directors of the company for the commencement of the business by the company within one hundred and eighty days from the date of its incorporation.

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Explanation of the Provision in Brief

The first and foremost steps to comply with Companies Act,2013 after the incorporation is the declaration of starting the business of the company. This declaration is mandatorily obligated by the company and its directors. The Company shall file the FORM-20A with the Registrar of Companies within one hundred and eighty days from its incorporation through its directors.

The FORM-20A is a declaration by the directors for the commencement of the company’s business. It contains the following information:

  1. The Subscribers of the Memorandum of Association of the company had deposited the amount of subscribed share capital with the Bank Account of the Company.
  2. The verification of the Registered Office of the company through attachment of photo of the premises of the Registered Office.

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Failure Consequences of the Above Declaration:

The compliance is beneficial for the company and its stakeholders as whole. However, if there is non-compliance by the company and its officers it leads to various harsh consequences.

The non – compliance in pursuant to Section 10A of the Companies Act,2013 leads to following consequences:

  1. The failure of non-filing the FORM-20A by company leads to the liability upon the company of penalty which shall be fifty thousand rupees.
  2. And upon every officer in default shall be liable to the penalty of one thousand rupees for everyday till failure continues but not exceeding one lakhs.
  3. The Registrar of Companies is of the opinion that there is no commencement of business by company and no such declaration is made within prescribed time, the ROC can initiate the process of removal of the name of the company from its register and strike off the company.

Hence, compliance of this provision is very crucial because non-compliances may lead to the strike off the company and closure of its business.

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Updated on: 10 Apr, 2024 | 7 min read

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